Decided it’s time to start saving for your little one? Putting
money aside for your child is a great way to prepare them for their future, and
can also teach them valuable lessons about their managing their finances.
Whatever hopes and dreams you have for your children or
grandchildren, it’s reassuring to know that you can help make this happen by
setting them on the path to financial security when they are young. To fund the
future you want for them, it’s crucial to start saving early.
Building wealth for your children or grandchildren
Junior individual saving account (JISA)
Junior ISAs share the same set of rules as adult ISAs,
though with a lower annual limit on contributions, currently £9,000 (2020/21
This means they’re a tax-efficient way to save in your
child’s name. The money cannot be withdrawn before the child’s 18th birthday, so
cannot be used for certain expenses, such as school fees. The child will take
control of the money, and can make their own investment choices, from the age
As with a Junior ISA, a child can withdraw money from a bare
trust in their name once they turn 18. However, withdrawals can also be made
for the benefit of the child before this age. So, it can be used for school
fees, for example.
A second difference is that there is no limit on how much
can be paid in. While it is not protected from tax (as a Junior ISA is), it
will be taxed as if it belongs to the child, so will often fall within their
Discretionary trusts offer more control and flexibility to
the trustee. It is possible to establish one in the name of a group of
beneficiaries (named or unnamed), for example, all your grandchildren. The
trustee retains control over the money and investment choices and sets the
However, the tax treatment is more complex than for bare
trusts, usually resulting in higher taxes and more administration.
Junior self-invested Personal pension (SIPP)
Junior SIPPs operate according to the same rules as other
pensions, except that they have a lower £3,600 annual limit on contributions
(2020/21 tax year).
This means that, like other pensions, tax relief is added to
contributions, and no tax is paid on income and capital gains. It also means
that, currently, withdrawals are not possible until the child reaches age 55.
So, while they offer very little flexibility, there is potential for even small
investments to grow significantly.
Want to discuss investing for your children?
As the costs of private education, university, getting on
the property ladder and weddings continue their relentless upward march,
investing for your children early is crucial. If you’d like to discuss the best
way to save for the next generation, contact us for more information.
TRUSTS ARE A HIGHLY COMPLEX AREA OF FINANCIAL PLANNING.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TRUST ADVICE.
TAX LAWS ARE SUBJECT TO CHANGE AND TAXATION WILL VARY
DEPENDING ON INDIVIDUAL CIRCUMSTANCES.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO
DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE